Hong Kong-based billionaire Li Ka-shing's flagship company Hutchison Whampoa Group is in exclusive talks with Spanish firm Telefonica SA to acquire its UK-based telco O2 UK for up to £10.25 billion ($15.4 billion), the company said on Friday.

The transaction, which is subject to approvals, would make Hutchison the largest mobile operator in the country. It already operates the Three mobile network in the UK.

Last year BT was in talks with both EE and O2 for a buyout. EE, the country's top telco, is jointly owned by Deutsche Telekom and French telco Orange.

Hutchison said it will pay £9.25 billion in cash and £1 billion in deferred upside interest-sharing payments at the closing of the deal.

The exclusivity period will last several weeks, allowing Telefónica and Hutchison Whampoa Group to negotiate definitive agreements, while the necessary due diligence process on O2 UK is completed.

O2 was formed in 1985 as a 60:40 JV between BT Group and Securicor. In 1999, BT Group acquired Securicor's 40 per cent stake and rebranded as BT Cellnet.

It was spun off from the BT Group in 2002 and created the O2 brand.

Spain's Telefonica acquired O2 for £18 billion in 2005. At that time, however, the firm also housed additional assets in Ireland and Germany which are not part of the latest deal.

Li Ka-shing owned Hutchison exited India back in 2007 to eye new opportunities in other markets. It sold its entire stake in its JV with Essar to Vodafone for around$10.9 billion. Vodafone has been mired in controversy over possible tax liability over the deal for years.